CLNS-Investment Company and Phillips 66 Company - Article Example

LNS-Investment Company and Phillips 66 Company Summary of Key Facts Plaintiff, successor to the company known as Compu-Blend Corporation (“CBC”), which blended, labeled, and packaged quart plastic bottles of motor oil for defendant Phillips 66 Company entered into a contract with Phillips manifested in a letter dated July 29, 1986 (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). Said contract contained the confirmation of the verbal agreement that Phillips will purchase additional quantities of plastic bottles from CBC during 1986, CBC’s commitment to purchase several additional molds to blow the Phillips plastic one-quart container and Phillip’s agreement to take delivery of a maximum of 4,000,000 bottles to be made available by December 31, 1986 (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). It also provided that should CBC not be able to produce the full 4,000,000 quarts on said date, the agreement shall be considered satisfied (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). Finally, it was agreed that all production would be of high resaleable plastic quarts filled with the appropriate Phillips products, labeled accordingly, and made available on weekly basis (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). Plaintiff however, experienced numerous problems in maintaining its pre-contract capacity and the quality of goods was frequently unacceptable to defendant, leading the defendant to write a complaint to the Chairman of the Board of CBC (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). The Chairman responded to the letter, acknowledged certain deficiencies and offered reasons for their inability to perform but promised improvement in deliveries (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). Defendant reiterated its continued dissatisfaction and stated that it would not renew any commitments to purchase goods due to plaintiff's poor performance (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). Plaintiff then filed this suit alleging that defendant breached the agreement by failing to purchase plaintiff's full output of plastic bottles to which Philips countered by arguing that it was entitled to suspend its performance for not receiving reasonable assurances from CBC (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). Issue Was Phillips entitled to suspend its performance of the contract because it did not receive reasonable assurances from CBC that it would perform its obligations under the contract? (Barnes, Dworkin & Richards, 2000) Holding Yes. Reasons Phillips was entitled to suspend its performance of the contract because of CBC’s failure to provide either the quantity or quality of goods contemplated by the agreement (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). The Kansas law, specifically Section 84-2-609 of the Uniform Commercial Code states that, although the contract for sale imposes an obligation on each party to receive due performance which will not be impaired, however, when reasonable grounds for insecurity arise with respect to the performance of either party, the other may in writing demand adequate assurance of due performance (K.S.A. 84-2-609). It provides that until he receives such assurance, he may, if commercially reasonable, suspend any performance for which he has not already received the agreed return (K.S.A. 84-2-609). Furthermore, said law provides that after receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days, such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract (K.S.A. 84-2-609). Thus, under the law, to suspend its performance, defendant must (1) have had reasonable grounds for insecurity regarding plaintiff's performance under the contract, (2) have demanded in writing adequate assurance of plaintiff's future performance and (3) have not received from plaintiff such assurance (K.S.A. 84-2-609). In this case, defendant had reasonable grounds for insecurity regarding plaintiff's performance agreement (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). Exhibits as well as testimony during the trial conclusively demonstrated that plaintiff suffered numerous setbacks, due to the poor quantity and quality of the bottles (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). The Court thus held that the defendant was entitled to cancel the contract soon after plaintiff's unacceptable performance began and circumstances were sufficient to establish defendant's right to adequate assurance of plaintiff's future performance under the agreement (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). In this case, defendant notified the plaintiff of the inadequacies of goods and requested assurance that plaintiff would take steps to rectify the same agreement (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). Despite this, plaintiff failed to provide defendant with adequate assurance of its future performance agreement (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). The Court cited that the plaintiff's continual excuses for failing to perform, unaccompanied by corresponding remedial action, cannot be deemed adequate assurance under the Code agreement (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). As stated by the Court, defendant was entitled to suspend its own performance of the contract by refusing to place orders with plaintiff and/or cancelling unfilled orders already placed, thirty days after the letters agreement (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). In this case, defendant did not breach the contract by suspending performance in December 1986, and thus judgment was entered in favor of defendant dismissing plaintiff's breach of contract claim agreement (LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484, 1990). References K.S.A. 84-2-609 LNS-Investment Co., Inc.v. Phillips 66 Co., 731 F.Supp. 1484 (1990) Barnes, J., Dworkin, T. & Richards, E. (2000). Law for Business. 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